The firm weighs in with their view on the CBRT decision yesterday
The Turkish central bank surprised markets with a 415 bps rate cut yesterday (markets have roughly priced in a 300 bps cut only) and from their language, more rate cuts are expected to follow now that Erdogan is getting things done his way.
Goldman Sachs is of the view that the one-week repo rate will be brought down to 15% from the current 19.75% by October, arguing that "the risk has risen for a sudden reversal in rates in Turkey" with the central bank shifting to "supporting growth".
The lira took the decision yesterday in good stride with USD/TRY lurking close to 5.70 currently, little changed from before the announcement.
One particular firm is of the view that markets are underestimating the risks surrounding the currency though. Commerzbank argues that the market reaction is "incomprehensible, as yesterday's step constituted the foundation for future lira weakness".
Adding that there might be a "horrible boomerang effect" to the rate cuts yesterday and possible future ones to come. They see the lira depreciating down the road and that will in turn fuel inflationary pressures again by year-end.
